March 26, 2019

Tenth Circuit: Concealment of Arbitration Agreements Until Late Stage of Litigation Constituted Waiver of Right to Arbitrate

The Tenth Circuit Court of Appeals issued its opinion in In re Cox Enterprises, Inc.: Healy v. Cox Communications, Inc. on Wednesday, June 24, 2015.

Cox is a cable provider involved in class-action litigation brought by subscribers to its cable service. In 2009, subscribers in several jurisdictions filed suits against Cox, alleging the company illegally tied provision of its cable service to rental of a set-top box. The actions were consolidated in a multi-district litigation and transferred to the U.S. District Court for the Western District of Oklahoma. Cox moved to dismiss, and during the pendency of its motion began inserting mandatory arbitration clauses into contracts with many of its customers, including class members. Cox does not appear to have notified the District Court about its insertion of the clauses. Plaintiffs’ efforts to certify a nationwide class failed, and instead they sought to certify several classes for geographic regions. These actions were again consolidated and transferred to the Western District of Oklahoma.

The instant case was originally brought in April 2012, and Cox unsuccessfully moved to dismiss in September 2012. The parties then engaged in substantial discovery, and named plaintiff Healy moved to certify a class in September 2013. Cox at no time mentioned the arbitration clauses. The court granted class certification in January 2014 as the parties continued to engage in discovery. Cox appealed to the Tenth Circuit in March 2014, again failing to mention the arbitration clauses, but its petition was denied. In April 2014, Cox moved for summary judgment, and that same day it moved to compel arbitration against both the absent class and named plaintiff Healy, citing the arbitration clauses for the first time. It later clarified that it was not compelling arbitration against Healy. The district court denied the motion to compel on the basis that Cox’s prior conduct in the litigation constituted waiver. Cox appealed.

The Tenth Circuit used its six-factor Peterson test to evaluate whether the right to arbitration had been waived. The six factors are (1) whether the party’s actions are inconsistent with the right to arbitrate, (2) whether the parties were well into the preparation of a lawsuit before a party notified the opposing party of an intent to arbitrate, (3) whether a party requested arbitration enforcement close to a trial date or delayed for a long period before seeking a stay, (4) whether a defendant seeking arbitration filed a counterclaim without requesting a stay, (5) whether important intervening steps like discovery had taken place, and (6) whether the delay affected, misled, or prejudiced the opposing party.

The district court determined Cox’s failure to inform it of the presence of arbitration agreements until after class certification was inconsistent with an intent to arbitrate and suggested an attempt to manipulate the process, as it would affect the numerosity of the class. The Tenth Circuit agreed, also finding that because Cox did not request for its motion for summary judgment to be stayed pending arbitration implied an attempt to “play heads I win, tails you lose” by manipulating the litigation machinery. The district court found, and the Tenth Circuit agreed, that the second, third, and fifth Peterson factors also cut strongly against Cox. Cox did not invoke the arbitration agreements until two years after the lawsuit was commenced, and substantial discovery had occurred before the invocation. Further, Cox failed to mention a factor that would have significantly affected the district court’s Rule 23 analysis, and Healy would be significantly prejudiced if arbitration were allowed. The Tenth Circuit opined that perhaps the greatest prejudice would be to the integrity of the judicial process, since both the district court and Tenth Circuit had invested significant time and energy in analyzing literally thousands of pages of documents.

Cox argued the Peterson factors were inapplicable because a party does not invariably waive its right to impose arbitration by filing its motion to compel after class certification. The district court rejected this argument as an improper attempt to artificially narrow the scope of the waiver, and the Tenth Circuit agreed. Cox could have asserted its right to arbitration at many earlier litigation stages but chose to conceal the arbitration provisions. Further, the district court’s denial of the motion to compel was based not on Cox’s failure to compel arbitration earlier but rather its specific conduct evincing an attempt to “take multiple bites of the apple.”

The Tenth Circuit affirmed the district court.

Print Friendly, PDF & Email

Speak Your Mind

*